How Much Should a First Car Cost? A Practical Guide to Buying Your First Vehicle

How Much Should a First Car Cost? A Practical Guide to Buying Your First Vehicle

Buying your first car is a major milestone, but one that comes with important financial decisions. From budgeting for a car to negotiating the final deal, every step impacts how much you’ll actually spend. So, how much should a first car cost in today’s market?

The short answer: it depends on whether you’re buying new or used, how you finance the purchase, and your long-term driving goals. At Sound Credit Union, we understand the challenges first-time car buyers face, and we’re here to help you navigate the process with confidence. This guide will walk you through every step of the process, so you can make a smart, confident first car purchase.

Sticker Shock Is Real. Set a Budget First

Let’s start with the numbers. The average price of a new vehicle in the U.S. was $48,799 in May 2025, according to Kelley Blue Book. This marks nearly a 30% increase over 2020 prices, which averaged $37,851. Even if you’re buying used, the average used car price is now $25,751, according to Car Edge.

This is why budgeting for your first car is essential. Most financial experts suggest spending no more than 15%–20% of your take-home pay on a car payment, and 10% on car-related costs like insurance, gas, and maintenance.

Once you’ve established a realistic budget, it’s time to dive into the details of how to buy your first car. Whether you’re leaning toward new or used, doing the right research upfront will help you narrow your options and avoid overpaying. Let’s start with the first step: online research.

Step 1: Do Your Research Online

Yes, we know, you’re excited to get behind the wheel! But before heading to a dealership for a test drive, take some time to research your options online. For this to be the most helpful, you should have a budget in mind and an idea of the general type of car you want.

Start by identifying your needs. Ask yourself:

• Are you looking for something fuel-efficient, compact, or family-friendly?
• Do you prefer a new or used vehicle?
• What’s your price range for this first car purchase?

Once you’ve outlined these basics, use reputable car research sites to compare models, read reviews, and check current pricing.

Recommended Sites:

• Kelly Blue Book – Car values and expert reviews.
• Edmunds.com – Detailed vehicle ratings and cost-of-ownership insights
• Cars.com – Local dealership listings with filtering tools
• Autotrader.com – New and used inventory search
• Sound Credit Union’s Car Shopping Tool – Powered by AutoSMART, this tool lets you search local inventory, compare prices, and even estimate loan payments, all in one convenient place.

Check out the safety ratings and the reviews, then look at prices. You’ll see the MSRP (the manufacturer’s suggested retail price) for new vehicles, and market value estimates for used ones. Understand that cars can also be discounted just like other merchandise. A rebate (money back for buying a particular car) is one form of discount; an incentive (like a low-interest rate loan) is another.

• Rebates: Cash Incentives offered by the manufacturer
• Financing Incentives: Similar to low-interest loans or special lease offers

Doing this research upfront gives you a clearer picture of what a good price for a first car is and helps you avoid overpaying. The next step is to figure out how you’re going to finance your car before heading to the dealerships.

Step 2: Shop for Financing Before You Shop for the Car

One of the most important, and most overlooked, steps in buying your first car is arranging your financing before you ever step onto a dealership lot. While paying in cash is ideal, it’s not realistic for most first-time buyers. That’s why securing financing ahead of time is a key part of budgeting for a car and staying in control of your total costs.

Why Financing Makes Sense

Unless the dealership is offering a truly exceptional promotional rate, it’s smart to line up your own financing based on your credit score and monthly budget. Getting pre-approved for an auto loan not only gives you a clear price range for your first car purchase, it also strengthens your negotiating position when you’re ready to buy.

Where to Shop for Auto Loans

Use online tools to compare interest rates, terms, and lender reputations:

• Comparison Sites: Use comparison sites like NerdWallet or Bankrate to find competitive interest rates based on your credit score.
• Local Credit Unions: Often the best-kept secret in car buying. Credit unions like Sound Credit Union typically offer lower interest rates, more flexible terms, and fewer fees than banks or dealership financing on auto loans.

Pro tip: Don’t just look at monthly payments. Pay attention to the total cost of the loan over time, including interest.

Not sure where to start? Contact Sound Credit Union to speak with a local lending expert who understands the needs of first-time car buyers. They can help you explore your options, get pre-approved, and feel more confident heading to the dealership.

Step 3: Visit the Dealership with Confidence

Once you’ve done your homework, it’s time to visit a few dealerships.

How to Make the Most of Your Dealership Visit:

1. Be prepared: Avoid walking in unprepared. Instead, come armed with a short list of vehicles you’re considering and a clear first car price range based on your budget and pre-approved financing. This keeps the focus on what you want, rather than what a salesperson may try to upsell.
2. Test Drive With Intention: Take your time with test drives; this is your chance to experience how the car handles in real-world conditions. Try city driving, highway speeds, and parking maneuvers. Some dealerships even offer extended or overnight test drives, giving you more time to assess whether the car fits into your daily routine.
3. Ask Questions and Take Notes: During your visit, don’t hesitate to ask about warranties, vehicle history (if used), and dealer fees. Take notes so you can compare vehicles and offers later without relying on memory.

After narrowing down your options and finding a car that feels right, it’s time to talk numbers. This is where preparation really pays off. Understanding the true cost of the vehicle and how to negotiate effectively can help you stay within your budget and avoid overpaying.

Step 4: Negotiate Like a Pro

Negotiation might feel intimidating, especially when you’re buying your first car, but it’s one of the most important steps in making sure you get a fair deal. Even when inventory is limited, there’s often still room to negotiate, especially if you’ve done your homework.

How to Negotiate at a Car Dealership:

1. Know the Dealer Invoice Price: Your starting point should be the dealer invoice price, the amount the dealership paid the manufacturer for the vehicle. While you may not get the car at that exact number, aiming close to it ensures you’re not overpaying. Be sure to factor in additional costs like sales tax, title and registration fees, and dealer documentation fees.
2. Shop Around and Use Leverage: Visiting multiple dealerships or expanding your search radius can uncover better offers and strengthen your negotiating position. If you find the same vehicle listed for less elsewhere, use it as leverage. Let your local dealer know that you’re serious, but you’re also watching offers elsewhere.

Pro tip: Being polite but assertive often works better than being confrontational. Dealerships want your business; use that to your advantage.

Securing a great deal upfront is important, but don’t forget to think long-term. The value of your car down the road can have just as much impact on your finances as the purchase price today.

Step 5: Consider Resale Value

Even if this is your first car purchase, it likely won’t be your last. This is why it’s important to think beyond just the price and features. Choosing a car with strong resale value can help you recover more of your investment when it’s time to upgrade or sell.

What Factors Impact Resale Value?

1. Color: While you might be dreaming of fire-engine red or neon green (no judgment here), keep in mind that neutral colors like black, white, gray, and silver tend to hold their value better over time. These classic shades appeal to a wider range of future buyers, which can make your car easier to resell for a better price.
2. Brand and Model Reputation: Vehicles from manufacturers with strong reliability ratings (like Toyota, Honda, and Subaru) often depreciate more slowly.
3. Mileage and Maintenance History: The average car today can last 200,000 to 300,000 miles when properly cared for. Keeping up with regular maintenance will not only extend the life of your vehicle but also boost its resale value.

As you evaluate vehicles, ask yourself: Will this car still be desirable in five years? Practicality, efficiency, and broad appeal often win over flashy upgrades when it comes time to sell.

Step 6: Buying Used? Do a Deep Background Check

If your first car will be a used one, do your due diligence. Start with a vehicle history report and invest in a pre-purchase inspection.

Use trusted sites like CarFax or AutoCheck to run a vehicle history report using the VIN. These reports can reveal:

• Major accidents or collision damage
• Gaps in service or maintenance history
• Number of previous owners
• Title issues or salvage history

Look for any red flags, like major accidents or gaps in maintenance records. If anything looks suspicious or incomplete, don’t be afraid to ask questions or walk away.

Also, invest in a pre-purchase inspection (PPI) from a trusted mechanic. It typically costs less than $100 and can uncover hidden issues with tires, brakes, fluids, or previous repairs. This small step could save you thousands in surprise repairs later.

Final Thoughts

So, how much should a first car cost? The answer depends on your budget, needs, and long-term plans. But whether you spend $7,000 on a used compact or $22,000 on a new sedan, the real key is being informed. With careful research, smart budgeting for a car, and the right financing, your first car purchase can be a decision you feel great about for years to come.

Take your time. Stick to your budget. And don’t let the excitement of the moment override your financial goals.

Ready to Buy? Apply for an Auto Loan With Your Local Credit Union: Sound CU

Once you’ve narrowed down how much your first car should cost and found the right vehicle, lock in financing that works just as hard as your new ride. At Sound Credit Union, we offer straightforward, supportive auto loans designed with first-time buyers in mind.

Here’s what you can expect:

• Competitive, member-focused rates on new and used auto loans
• Flexible terms that fit your budget and future plans
• Fast online pre-approval so you can shop with confidence
• Local experts ready to guide you every step of the way

Don’t let high sticker prices or complex paperwork stall your first car purchase. Apply for an auto loan with Sound Credit Union today and drive off knowing you secured financing built around you.